In brief

  • Israel is advancing its research into a possible central bank digital currency (CBDC), the country’s central bank governor said today.
  • But Israel is still not 100% sure it will release a CBDC.

Israel is fast-tracking its research and development efforts for its own central bank digital currency (CBDC), Reuters reported today, citing the Bank of Israel governor. 

Amir Yaron, who has been the central bank's governor since 2018, said Monday that although the Bank of Israel had not decided yet on issuing a digital shekel, it was "committed to being at the forefront of economic and technological knowledge" regarding a CBDC, the report said. 

A CBDC is a digital version of a fiat currency (like the US dollar or Israeli shekel), backed by a central bank. Some CBDCs employ a blockchain, the technology that underpins cryptocurrencies such as Bitcoin

But CBDCs are different to cryptocurrencies like Bitcoin and Ethereum because they are permissioned (i.e. privately controlled) and centralized. Countries around the world are currently researching the benefits of developing their own CBDCs. 

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Israel in May said that a digital shekel could help its economy—and that it was trialing the Ethereum blockchain for its own CBDC.

Today Yaron added that "central banks have a unique role to play in preventing fragmentation and ensuring that the payment system becomes even more uniform and efficient and that  "one way to do this is through CBDC."

The idea is that a digital shekel would create a more efficient payments system, he said. 

CBDCs are split into two types: retail and interbank. A retail CBDC can be directly held by citizens and is used as a digital form of cash as a complement to paper money. An interbank CBDC is restricted to use by financial institutions for interbank payments and financial settlement processes.

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Most countries looking to issue a CBDC will use blockchain technology to do so, according to a report earlier this year by PricewaterhouseCoopers.

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